War II, the Dutch East Indies became the independent nation of Indonesia, with
222 million people the world's fourth-most populous country and the most
populous Muslim-majority nation. Membership in international institutions such
as the World Trade Organization, the International Monetary Fund and the Bank
of International Settlements are only treaty obligations assumed by sovereign
states.

Britain immediately followed the Dutch example of expanding colonialism through
a joint stock company. The British East India Trading Company had been granted
a royal charter by Elizabeth I on December 31, 1600, two years before the
founding of VOC, with the intention of bestowing upon it favorable trade
privileges

with India. The company was a collective enterprise of London private
businessmen who banded together to make money importing spices from South Asia.

The royal charter granted the newly created company a 21-year monopoly on all
British trade in the East Indies. The Company through private placement quickly
transformed from a private commercial trading venture to one that virtually
ruled India and other Asian colonies as an imperialist overlord as it acquired
auxiliary governmental and military capability. But its shares were not
publicly traded until after the founding of the London stock exchange in 1801.
Thereafter, the corporate structure of the British East India Company became a
classic model of a successful publicly traded joint stock company.

Many innovative organizational features, such as reliance of a network of
highly compensated agents, known as compradors, to efficiently exploit chaotic
markets, were later copied by modern transnational corporations. The comprador
system reduced capital levels for the company while spreading the risk away
from the company. Much of the dirty exploitation was carried out by comprador
agents while top management at company headquarters stayed above it all by
comforting itself with having played fair according to the high-sounding
principles of capitalism,
For centuries, the spice trade with the East Indies relied on land routes
across Asia and the Middle East, but by the 16th century, the superior shipping
technology of the Portuguese permitted Europeans to cut out Arabic
intermediaries to make far greater profits. The Spanish and Portuguese had a
monopoly of the East Indies spice trade until the destruction of the Spanish
Armada in 1588, which permitted the English and Dutch to control this lucrative
trade.

Yet British East India Company policies in Bengal were responsible for failing
to prevent the Bengal famine of 1770, which left a third of the native
population of 30 million dead from starvation. As a trading entity owned and
run by a foreign race, the Company's mandate was to maximize profit by
exploiting its chartered right to impose a land tax over its jurisdiction and
trade tariffs on imports. The land tax in Bengal was raised five fold to 50%
from 10% of the estimated value of the agricultural produce on all land in
territory control by the Company, including land not directly owned by the
Company.

Land tax was the key device of the British colonial authorities of all its
colonies to make the natives productive in monetary terms. Native farmers and
rangers were compelled to produce more than their families needed for
consumption and to sell the surplus in the market for money issued by the
Company to pay land taxes. Most of the tax revenue did not stay in India or
other colonies for local development. It flowed to England as dividends for
British shareholders.

All investments in India and other colonies were directed toward raising trade
profit for the Company, rather than to improve the welfare of the natives. As
the Bengal famine approached its most severe stage in April 1770, the Company
announced a further increase of the land tax to 60% of potential production
value.

The Company forbade the "hoarding" of rice at a good harvest so that it could
maximize profit from low prices it paid growers due to a supply glut, thus
preventing traders and dealers from holding reserves to feed the native
population during lean periods. It also paid farmers to plant opium and tea
cash crops instead of rice to increase company profit.

The tea that was dumped into the harbor by members of the Boston Tea Party in
the American Revolution in 1773 was British East India Company property.
American colonists were protesting against the British East India Company's
monopoly over tea exports to the colonies. By the time of the famine, full
monopoly in grain trading had been firmly established in India by the Company
and its agents. The Company had no plan for dealing with the grain shortage
besides measures to assure food supply for British executives and their native
employees. Globally, company profit doubled in the decade of the famine.

The privileged monopoly of the Company was criticized by Adam Smith, advocate
of free trade, Edmund Burke, apologist for American secessionism yet
conservative critic of the French Revolution, and British home merchants locked
out of the lucrative Asia trade, who protested against the Company's
administrative abuses and monopolistic ineptitude. In 1833, Parliament declined
to extend the monopoly of the British East India Company on trade between
Britain and China. Jardine, Matheson & Co took advantage of this
open-market opportunity to transform itself from the position of leading agent
of the British East India Company to that of a competitor to prosper in the
next century.

Opium smuggling into China
In the 18th century, England was incurring huge trade deficits denominated in
silver with China under Qing dynastic rule, as silver was legal tender in
China. This trade deficit was draining silver from the British Mint at a time
when England was on the gold standard, which undervalued silver, causing silver
to leave England en masse to effectuate an inflow of gold. Thus British
merchants had to buy silver in continental Europe with gold at higher prices
that cost almost one more ounce of silver for every ounce of gold sold, because
of the silver/gold ratio set by European bimetallism.

The price differential of silver between England and the Continent continued
until Germany demonetized silver in the 1870s. This meant silver before the
1870s was priced higher as a monetary unit in Europe than its intrinsic value
as a commodity because of German seigniorage. Silver was also priced lower both
commercially and monetarily in Europe than the silver/gold ratio set by the
gold standard in England.

Because there was not much that China would want to buy from the West in the
18th century because China, as a more advance civilization and a wealthier
economy, was producing all the goods she needed in superior quality, especially
from Britain where goods produced by early industrialization were generally
crude and monotonous, the British East India Company resorted to opium
smuggling to China, where opium trade was illegal, to balance the Company's
rising trade deficit.

To impose the illegal opium trade on China, the Company soon found it needed to
persuade the British government to adopt gunboat diplomacy to turn trade into
economic and political imperialism. Beginning in early 19th century, Britain
became the "Workshop of the World" of crude mass-produced products that even
members of the British upperclass themselves did not find attractive and had to
be exported to less cultured colonies. But Chinese markets were too cultured
for these goods. Until opium smuggling, the British were unable to break into
the huge Chinese market.

Britain needed more new capital to finance its growing industries and sought it
from new wealth reaped from overseas colonies. She also needed more raw
materials to maintain its growing industries and more markets for the finished
goods in a mercantilist trade regime. She also needed safe shipping routes
between the British Isles and her far-flung colonies. Lord Palmerston
(1784-1865), liberal successor to the conservative Duke Wellington as Foreign
Secretary in 1830, claimed that Britain wanted only peace and prestige, a
euphemism to justify his gunboat diplomacy to expand illegitimate British
commercial dominance all over the world. But China remained elusive to British
colonial ambitions until the British introduced opium in its China trade.

At home, Palmerston's expansionist foreign policy ran into conflict not only
with the English landed gentry who opposed trade expansionist industrialists.
The Corn Laws were passed by Parliament to protect British agriculture from
cheap imports. (See Big
money and the Corn Laws, Asia Times Online, May 1, 2002.) Palmerston
also clashed with Queen Victoria who wanted British foreign policy to avoid
creating situations that would weaken monarchism in Europe, where it was
increasingly threatened by the rising revolutionary ferments of republicanism,
democracy or socialism. Most royal families were her blood relatives through
marriage. Her apprehension was not mere paranoia, as the German Kaiser and the
Russian Czar both lost their crowns. The Kaiser went into exile in the
Netherlands and lived until 1941. The Russian imperial family lost their lives
through revolutionary regicide. But on imperialism on non-while peoples, the
queen and her foreign minister were of one mind.

Palmerston launched the First Opium War of 1841 against China, considered then
"the sick man of Asia" by Europeans. He was advised by William Jardine, head of
Jardine, Matheson & Co, who literally planned the entire military operation
and drafted the proposed surrender terms to be presented to a defeated China.
Easy British victory forced a poorly governed China open to Western imperialism
for the next century. While the British smuggled opium to China from British
India, the Forbes and Delano families of Boston smuggled opium from Turkey,
grown under British supervision, into China with China Clippers. Much of the
profit from the US opium trade went to Boston and through Boston banks to
finance the expansion of the US West as investments in railroads built mostly
with imported Chinese slave labor.

The Bengal famine of 1770 caused liberals in British politics to realize that
private companies could not be expected to deal effectively with
socio-political issues of mercantile colonialism. For a solution, British
liberals opted for political colonialism and passed the Government of India Act
of 1858 to make the British Crown the direct ruler of India, following the
so-called Indian Rebellion in 1857, in reality an independence struggle
brutally suppressed by British forces. All properties of the East India Company
were transferred to the Crown, Queen Victoria subsequently being anointed with
the title of Empress of India in 1876.

The Company's 24,000-man private military force was incorporated into the
British India Army, leaving the Company with only a shadow of the power it had
wielded years earlier. Without its monopoly and quasi-governmental powers, the
Company was finally dissolved on January 1, 1871 by the East India Stock
Dividend Redemption Act.

The British East India Company throughout its history naturally had an interest
in developing a network of fortified supply points along shipping routes from
Britain to India. As early as 1620, the Company attempted to lay claim to the
Table Mountain region overlooking today's Cape Town in South Africa and later
occupied it. Cape Town was a key supply point for shipping to India, just as
Singapore was for shipping to China after the opening of the Suez Canal in
1869. The rounding of the cape in 1488 was a major milestone in Portuguese
navigational attempts to establish direct sea trade routes to the Far East. The
British East India Company also ruled St. Helena, where the defeated Napoleon
was kept prisoner until death under Company administration.

Elihu Yale (1649-1721), Boston born but who returned with his family to England
at age four, was connected to the British East India Company for two decades
and became the second governor of Madras, now Chennai, in 1687. His widowed
grandmother had remarried Governor Theophilus Eaton (1590-1657) of the New
Haven Colony in Connecticut. Yale amassed a fortune in his lifetime, largely
through secret contracts with native Madras merchants against company
directive. By 1692, repeated flouting of company regulations and his illegal
profiteering led to Yale's being relieved of the post of governor.

In 1718, Cotton Mather (1663-1728), a socially and politically influential New
England Puritan minister and pamphleteer and a figure in the infamous Salem
Witch Trials, asked Elihu Yale in to help the Collegiate School of Connecticut,
founded in 1701, with money for a new building in New Haven, Connecticut. Yale
sent Mather a carton of goods that the school subsequently sold for 560 pounds
sterling, a substantial sum in the early 1700s. In gratitude, officials named
the new building Yale; eventually the entire institution became Yale
University, founded initially by opium smuggling profit from the British East
India Company.

Collapse of the Chinese economy
Over the length of two centuries, Britain devastated the economy of China, the
largest nation in the world, with an ancient, highly developed civilization and
the richest economy in the world until the British came in early 19th century.

The war indemnity of the First Opium War of 1841 alone imposed on China the
payment to Britain of 10 million pounds sterling, 3 million pounds of which was
for the destruction of confiscated opium contraband. Untold millions of pounds
were subsequently collected from unequal treaties forced upon China, the first
being the infamous Nanking Treaty, which among preferential trade concessions
granted to British interests ceded Hong Kong to Britain. The First Opium War
showed the West how weak imperial China really was behind its crumbling
superpower facade and opened China subsequently to a century of foreign
aggression and exploitation, draining wealth on a massive scale from China to
the European powers, the United States and Czarist Russia.

In 1900, the war indemnity from an Eight-Power Coalition invasion of China as a
result of the xenophobic Boxer Uprising forced China to pay 982 million taels,
or 40 billion ounces, of pure silver at the then British-controlled market
price of three taels per pound sterling, yielding 327 million pounds, of which
Russia received 29%, Germany 20%, France 15%, Britain 11%, Japan 7.7% and the
US 7.3%. This was three times the global trade deficit of 109 million pounds
incurred by Britain in 1910.

But the pound sterling was set by the British gold standard at 15 ounces of
silver, and 982 million taels of silver convert to 40 billion ounces of silver,
or 2.6 billion pounds sterling, not 327 million pounds. The sum of 2.6 billion
pounds was over 24 times the British global trade deficit in 1910. This sum and
other payment obligations from subsequent unequal treaties were so large that
Britain demanded and received control of Chinese maritime custom service to
collect tariffs to pay Western Powers their due from unequal treaties.

The final collapse of the economy of dynastic China was caused by the advance
of Western political imperialism initially via the